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NEW UPDATES Asean Affairs  16 October 2014  

VIP to be next hotspot for office investment

Research released by property consultant Cushman and Wakefield has highlighted the growing significance of Vietnam, Indonesia and the Philippines as destinations for office investment due to those countries’ growing economies.

Cushman and Wakefield’s latest publication highlights how VIP — the acronym used to describe the three neighboring countries — has emerged to challenge the now advanced economies of Brazil, Russia, India and China (BRIC), emphasizing how growth prospects for the bloc are “among the best in the region, which certainly supports demand for all classes of real estate.”

The real estate consultant has ranked Indonesia, the Philippines and Vietnam fifth, 14th and 25th in its 2014 Emerging and Frontier Market Risk ranking.

“Even though the scale and advance of the VIPs may not have the same global impact as the BRICs, especially those of China and India, they are in a class by themselves, still representing a major opportunity for any international company to invest,” the report said.

The price of office assets had appreciated at least 50 percent over a five-year period in Indonesia and the Philippines and slightly less in Vietnam, the report said.

Overall, the VIP office market offers higher returns — though with increased volatility due to a lack of transparency — than the returns in the US and European market, largely because of higher yields. In the prime office sector, for example, the VIP market is expected to provide returns of between 12 percent and 18 percent over the next five years — roughly double the estimate for advanced economies.

Cushman and Wakefield Indonesia managing editor David Cheadle said that VIP had now become an attractive investment destination due to growing economies, emerging middle classes, cheap labor and high literacy rates.

“If it were a single country, VIP would rank as the world’s 12th largest economy, with a combined estimated GDP of US$1.8 trillion in 2014,” Cheadle said.

    Vietnam, Indonesia, the Philippines (VIP) emerge to challenge BRIC in office market sector
    Surging middle class, cheap labor, high literacy underpin attractive VIP office investment climate

“The good news is that the VIP economies are diverse,” he said, adding that property investment would likely flow to the country with the most commitment toward infrastructure advancement.

While Indonesia’s main economic drivers are commodities, Vietnam relies on manufacturing and the Philippines on financial services and business process outsourcing (BPO).

Jakarta, Cheadle said, showed particular promise for Grade A office investment, with low rent and the most construction projects in progress, falling just behind China and India among other emerging economies.

According to Cushman and Wakefield data, Jakarta’s Grade A rents averaged $39 per square meter per year (sqm/year) by the second quarter of the year, more than 50 percent lower than rates in the New Delhi central business district in India, which has consistently been the most expensive emerging market in the region over the past five years.

Meanwhile, supply is sufficient to meet rising demand, with large-scale office project construction expected to increase significantly over the next three years and stocks set to rise by up to 40 percent by 2018, reaching over 6.6 million sqm.

The Manila office sector, the study reported, had also shown remarkable growth on the strength of its BPO sector and a Grade A office stock of around 4.6 million sqm.

Meanwhile, the manufacturing sector has been a vital catalyst of growth in Vietnam’s property markets, with Ho Chi Minh and Hanoi witnessing a development boom that is set to double Vietnam’s Grade A office stock to a combined 929,000 sqm by 2016.

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